EU palm conundrum: What’s the next move?

When the European Union (EU) first enacted the Renewable Energy (RE) Directive in 2009, the regional bloc thought it was doing the world a favour. It said ‘No’ to fossil fuels, promoted biofuels and had set a clear target to have 20% of its energy consumption to be sourced from renewables by 2020. Somewhere along the line, however, the group came to the realisation that it was doing more harm than good with the mandate. The support for biofuel seemed to have endorsed another evil.

Concerns had been raised about the indirect effects of growing crops for biofuels — especially whether land use change is causing more greenhouse gas emissions than biofuels actually mitigate, and how changing farming practices also affect food prices. Several commissioned studies found that crop-based biofuels had 1.8 times more climate impact than fossil diesel, while demand for such biofuels had driven deforestation further as planters expanded their landbank. And as if Europe needed more reason to detest palm oil, the commodity came out at the top of the list as the most unsustainable among the biofuel mix, as it emitted three times more carbon dioxide than traditional petrol.

This had prompted various environmental groups across the continent to react and demand for a change in the legislation. An ensemble of Dutch scientists even wrote a letter to urge the Netherlands to back a complete phase-out of crop-based biofuels in Europe, calling them a “false solution” to climate problems.

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It came as no surprise when Members of the EU Parliament (MEPs) made amendments late last year to come up with an improved version of the bill called the RE Directive II. When the ballot came, MEPs voted overwhelmingly in favour of it. Under the revised regulation, European lawmakers agreed to limit the support to biofuels by capping the use of food-based biodiesel at existing consumption levels.

The law would also see the removal of biodiesel made from palm oil and the approval of a blending mandate for advanced fuels, such as renewable electricity, waste-based biofuels and recycled carbon fuels. This shift away from biofuels and even more so, the expedited ban on palm oil, is where palm oil producing countries are having none of. Palm oil, being the cheapest vegetable oil in the market, is widely used in Europe.

Half of the 6.5 million tonnes of palm oil imported into the EU is used solely for biofuels in transport. Thus, such a ban would effectively reduce EU’s palm oil consumption by a size- able margin. Indonesia and Malaysia, suppliers of nearly 90% of world’s palm oil, have been vocal in their disappointment with Brussels, calling the discriminative ban on palm oil as a form of “crop apartheid” and demand that the EU charge other food crops with similar measures. While the request seems fair, it appears unlikely that the EU would pay heed to the appeal.

An all-out ban on all food-based biofuel would be catastrophic for the region’s transport segment — 70% of which still heavily depend on biodiesel. The initial directive had resulted in the upsurge in demand for biofuels, with biodiesel growing by 34% in just the first five years from when the policy took effect. Trade industry figures showed that the growth was contributed by a five-fold increase in palm oil for biodiesel in Europe.

With the majority of cars and trucks in the EU relying on biodiesel, it would take time and more supplies in between, before biofuels can be completely omitted altogether. Until then, the region would still need the likes of rapeseed, soybean and sunflower oils to fuel its engines. Despite all that has been said, the legislation remains up in the air. The draft measure would still need to go through a tripartite decision-making process before it can be fully implemented. Between now and then, you can expect palm oil players to do everything within their right to change or prevent the edict from being adopted.

Not Going Down Without a Fight

While some may argue that Malaysia, as an industry leader, could do more to prevent the EU’s ban on palm oil, the fact is that the country has put in numerous efforts to counter the block. Apart from the countless meetings held with EU representatives both in Europe and at home, Malaysia has partnered up with Indonesia to counter the discriminative policy which would impact the income and livelihood of 18.1 million small estate holders in the two countries.

Both have thrown hints of retaliation, should the EU carry on to pass the bill. Meanwhile, the demonstration of 20 over busloads of oil palm planters in Kuala Lumpur on Jan 16 was well-documented by local and international media alike, as a signed petition was handed over to the EU delegation to Malaysia.

Ministers, including the deputy prime minister (DPM), international trade and industry minister as well as the defence minister have also spoken out in opposition to the ban, with DPM Datuk Seri Dr Ahmad Zahid Hamidi stating that Malaysia would review its trade with the EU. Plantation Industries and Commodities Minister Datuk Seri Mah Siew Keong deserves special credit for his diligent defence of the commodity.

From his meetings to retorts, Mah has equally pushed for the mandatory implementation of the Malaysian Sustainable Palm Oil (MSPO) certification on all oil planters by 2019 to help elevate the local plantation industry to meet global environmental standards. But the question is, will all the hard work bear fruit? Can the country change what appears to be the inevitable that is coming from Europe?

Mah would argue that these efforts are seeing results. The EU parliamentary vote conducted in January saw lesser MEPs voted on a ban on palm oil compared to the poll held in April 2017. What is even more heartening is that member countries such as France, Germany, the Netherlands, Sweden, Italy and the UK have recently taken a stance against any discriminative treatment towards palm oil.

However, do these so-called acts of support actually mean anything or is it merely diplomacy?

The Trade War of the Pacifists

If all else fails, Europe and South-East Asia may be heading down a rocky path — one that would involve a kind of trade war between the EU and palm oil-producing countries, or at least that is what has been implied so far. Malaysia’s threat to impose a similar preferential ban on EU imports brings back old memories of a similar trade block when we were told to “Buy British Last”.

Honestly though, these tit-for-tat threats against the other do not seem to fit the inconspicuous ways of either sides. It seems unreasonable to think that two of the most pacifistic regions in the world today are on the brink of an all-out trade war. One would presume that US President Donald Trump’s “America First” rhetorics or the oil field bloodbath in the Middle East would spark a trade crisis, but not Europe or South-East Asia.

Both regions may have had their own brutal past, but in the post-war age, they are the linchpin of peace and stability in the world. However, as tensions over palm oil grow, that ideal may be pushed into naivety as both sides pit against the other in a battle between sovereign wealth and climate creed. But then again, with these pacifists, diplomacy should prevail.